About Me

Wednesday, January 28, 2009

With the Blackberry app store launching by the end of March 2009, a dramatic new problem will emerge with full force: Where is the application memory to run these new applications? In order to understand the magnitude of this problem, we have to look at the mother of all app store pioneers: Apple (AAPL) and the iPhone.

Ask almost any iPhone user what excites them about the iPhone, and almost all of them answer immediately that it's the app store, with many thousands of apps available. Many iPhone users have page after page after page worth of applications that they have downloaded. It seems like iPhone users install dozens and dozens of applications, and I don't see any signs of abatement. We may be entering a situation where most iPhone users love their platform so much because they have hundreds of applications running.

The Blackberry app store is being launched for the obvious reason that it's becoming the critical tool in the competitive tool kit. Without a vibrant developer community, it's very difficult to compete. The analogy with the PC world is pretty strong, and possibly even stronger given that location-based services generate so many more application possibilities that aren't as meaningful in the PC world. Here is the problem: An iPhone has 8 gig or 16 gig worth of memory, compared to a Blackberry, which has 64, 96, 128 or 256 meg worth of app memory, depending on the model. Yes, I know these numbers are not perfectly "apples to blackberries" (no pun intended), because Blackberry has an expansion card slot and the iPhone doesn't, and so forth. But keep in mind that the Blackberry's expansion memory is for multimedia (pictures, music, etc) storage, not for running apps or even containing things such as the address book that synchronizes with Outlook. One can also argue that an iPhone typically contains a lot more multimedia than most Blackberries, but Blackberries also synch with iTunes for DRM-free content, so that gap should narrow as awareness of this ability grows.

Those caveats aside, the SMALLEST iPhone (8 gig) has 32x the application memory of the LARGEST Blackberry (256 meg for the 8900 model). The manner in which most users will feel this dramatic 32x difference is in the ability to install new apps. Clearly, while some Blackberry apps have tended to carry a small memory footprint, one of the attractions of the iPhone is that those apps are very rich in their appearance and functionality, so in order to compete, Blackberry apps may have to become larger in order to be competitive.

What does this mean? It looks like this clash of Blackberry's app store vs the very small app memory will mean many unsatisfied users who will be lighting up the customer service switchboards like a Christmas Tree. Many people aren't likely to understand why they can't download/install/run all of these new apps, and their devices could start to freeze up, and their old emails and instant messaging conversation could be wiped to free up memory.

This is both a challenge and an opportunity for RIM (RIMM). The challenge will be all the unhappy customers calling to complain about the lack of ability of their current devices. The opportunity will be to start selling new Blackberries with an app footprint equal to, or greater than, the iPhone. Such a "forced upgrade cycle" is not free, and it is unclear how consumers will react to this. Either way, for Blackberry to go from 256 meg or less worth of app memory in its devices, to 16 gig and more – a 64x increase – will mark Blackberry's most important generational shift in the company's history.

The installed Blackberry base is now approximately 20 million. Ask yourself: How many of these will use the Blackberry app store as the excuse to go to another platform such as iPhone, Android and Palm, versus how many will upgrade to another Blackberry containing some 64x more memory than your current Blackberry?

Thursday, January 22, 2009

American memories are apparently becoming shorter and shorter. Various misguided references to the alleged causes and cures of The Great Depression aside, people don't remember that we once upon a time, less than 100 years ago, didn't have a Federal Income Tax, that drugs were legal (and then alcohol prohibited), and that inflation and interest rates were double-digits less than 30 full years ago.

Among the most recent things to be completely forgotten are the high gas prices, peaking in July 2008 with nationwide averages over $4 per gallon and people in California paying $5 on occasion. Politicians and pundits blamed this on "speculators" and called for the government to "do something." Toyota (TM) Priuses were selling at MSRP or higher.

Less than six months thereafter, gas prices had fallen by over 50%, and Toyota Priuses now come with $750 rebates to make them move. Never before did gasoline prices fall so far, so fast. Not even close.

What was the government program that fixed this economic problem? The answer is none at all. The government didn't lift a finger to solve this problem. It let the market do its magic, curing the issue with its own natural self-healing mechanism first described in Adam Smith's The Wealth of Nations [1776]. Sure, there was a lot of huffing and puffing about what people suggested the government should do, but in the end the government did nothing. The problem just went away. No government intervention solved the problem.

Think about it: The one recent problem which the government left to the free market to solve, got solved in record-short time. Contrast this to the ever-ballooning demands for the government to "do something" about the financial and economic crisis. The demands from almost all ends of the political spectra suggest that we drop all economic common sense and instead spend money we don't have.

Think about it again: We got into this mess by borrowing too much, spending too much, and making too many loans. What's being proposed? Let's spend even more, borrow much more, and make even more loans. It's like an alcoholic trying to cure a whiskey bottle's hangover by drinking a whole case worth of whiskey the next morning. If there ever were a more self-evident disaster outcome guaranteed, I can't think of one.

The free market cured the high gas problem in less than six months without the government lifting a finger or spending a dollar. Likewise, the free market would cure the imprudent debt bubble by allowing it to be pierced, seeing prices falling, wages falling and allowing bankruptcies and foreclosures to clean up the imprudent investments into orderly liquidation. Adjusting wages to demand, would guarantee full employment as with any other market price.

In a free market, the current recession would probably be cured within a year or two, and it would allow the government to cut expenses instead of increasing them. Only by dramatically cutting the size of our government, so that we can eliminate the deficit and start paying back the debt, can we restore sanity to our financial and monetary equation, which includes saving the value of the dollar.

As it stands, we are on a path that will put us in Germany's World War I surrender rail car and its 1918-20 aftermath. We will be left with a debt burden so great that the only way out will be massive inflation, as we essentially default on government bonds. Germany was left with a huge war debt after World War I, but because the debt was not denominated in British Pounds or French Francs, Germany simply inflated itself out of its obligations, causing dramatic mis-allocation of resources, societal chaos, the rise of Hitler and the bloodiest war (World War II) in its wake.

In our case today, the debt-explosion path that we will apparently be pursuing, will most likely also mean a massive inflation when we eventually print the money to pay off the bond buyers (read: The Chinese). China has one of the soundest economies in the world today, with low or nonexistent public and private debt, and high growth, but it has invested its surpluses largely in U.S. government bonds. Whoops! All that the Chinese worked for during the last decade, will go up in smoke. And in the wake of the Chinese losing their savings invested in U.S. government debt – another war? We are clearly playing with fire, taking on all this debt to finance unprecedented levels of government spending.

Monday, January 19, 2009

My fellow Americans, change has arrived in Washington. Not as much in the area of foreign policy and homeland defense, because I realize that my predecessor and distant cousin Dick Cheney had it right in the hours and days following 9/11 when he set this great Republic on a war footing to defeat the enemy and protect the homeland. Seeing as I would rather not have another 9/11 – or worse – on my watch, the change will come primarily in the area of economic policy, where my predecessor presided over many failures and set a dangerous course for this country, particularly in the last year.

My new administration promises a clean break with the failed policies of the past. In the last eight years, government spending grew to new heights, from $2 trillion per year to over $4 trillion this year. This stratospheric rise in the growth of the US government’s burden on the people is nothing less than a crime against our beloved constitution and the intent of the Fathers of the 1776 Declaration of Independence. In recent times, the US government has failed to impose on itself any of the restraints that have made this country so special for so long.

To the contrary, the US government is now engaged in a long list of activities and spending not authorized by our most fundamental governing document. Working with Congress, I will seek to restore the US government to its constitutional limits in my first year in office. What this means in practice is a rapid shut-down of all government departments except the Departments of Justice, Defense and Homeland Security. This means that all these other unconstitutional creations of the 20th century, such as the Departments of Education, Energy, Commerce, Health and Human Affairs, Interior will all cease operations in this glorious year of 2009.

The Federal government’s budget deficit, which the first time exceeds $1 trillion, will also be eliminated this year. Yet, I will also abolish all of the destructive and unjust taxes that have mushroomed over the last 95 years in particular: the income tax, the death tax, the capital gains tax, the corporate tax and the dividend tax. These tax cuts will once again make the US economy competitive with the countries around the world where economic growth and liberty has recently exceeded our own.

My first budget, which I intend to deliver to Congress already this afternoon in the hope of a speedy approval, will authorize total Federal expenses of less than $1 trillion over the next year, which is an amount ten times greater than President John F. Kennedy’s 1961 budget. This will fund an efficient Federal judiciary, our military defense, and the ongoing war against terrorism.

What the new budget will not do, because it is being returned to its constitutional limitations, is to send checks – to anybody or anything. If you or your company has an addiction to receiving money from the government, this will be the year when you sober up. It will not matter whether you are rich, poor or in-between – the time of government spending money on you are now over. Every single government program providing services or sending out checks, will come to an end. You and your company will live in the freedom of keeping what you earn and receive in voluntary help from your friends, family and any charitable institutions, but the mirror image of this blessing of freedom is that government will not support anybody or anything. I am breaking the back on welfare state dependency and entitlement by going cold turkey on all recipients, large and small.

This restoration of the constitutional legitimacy of the US government will be funded by a simple flat tax on US adults: At $1 trillion in total annual Federal expenses, a number which may end up even lower, it represents a flat $5,000 tax on each of our 200 million US adults. There will no longer be any need to file an income tax return, keeping any receipts, paying a tax preparer, or equivalent. This flat $5,000 tax will be due in monthly installments of $417, equivalent of $13.70 per day.

I expect the impact on the economy from this simple flax tax to be profound. People will be able to work as much as they want, and invest in any way they want, knowing that every incremental dollar they earn will be theirs to keep. All of the lost productivity resulting from tax-avoidance and the administration associated with corporate payrolls, will remain with us only in the form of an unpleasant memory, similar to the memories of living behind the Iron Curtain and Berlin Wall before 1989. Small business will be able to form without any bureaucratic hassle. The entrepreneurial spirit will be unshackled from all red tape, bureaucracy and tax disincentives.

My plan to cut over 75% of all Federal government expenses, and fund the remainder with a flat $5,000 tax, will also help cure political corruption in Washington DC. Lobbyists come to us because we have money to spend, and they seek to maximize their share of the pie. My cold turkey approach to restoring the US government to its constitutionally legitimate size will make almost all lobbyists obsolete: If the size of the pie is zero, there is nothing for which you can lobby.

So in closing, I can say with confidence that the 75% or greater reduction in size of the US government will bring about a rebirth of the era of freedom, rugged individualism and self-reliance. It will allow the US government to focus on its constitutionally narrow purpose of securing the property rights of our individual citizens, and to protect our country from those who seek to do us harm. This focus will enable us to perform these duties better. With this, I salute our constitution, our Founders and our Declaration of Independence. Now let’s get on with it. Thank you, and God Bless America.